Categorising something as a business judgment can provide directors with a powerful shield from accountability. It has been said that the courts in England and Wales defer to directors’ business judgments and directors’ decisions are protected from review in other jurisdictions by a business judgment rule. Yet what a business judgment is has never been addressed, and so precisely what is being protected, and why, is unclear. This paper analyses case law in England and Wales and key Australian and US cases to answer this question. It argues that the courts use the term judgment in two senses: an ability, and a decision sense, and that business judgment in both senses can be linked to Knight's concept of entrepreneurial judgment, and directors’ wealth creation function. Conversely, decisions that are linked to directors’ corporate governance function and are less easy to categorise as entrepreneurial are less likely to be viewed as business judgments.

The best interests rule – the central fiduciary duty of company directors in a number of common law jurisdictions – encapsulates loyalty between director and company. Its multifaceted nature means that it is employed to impose a number of requirements, as demonstrated in the multi-jurisdictional analysis in this article. Contemporary commentary and cases (such as Moulin Global Eyecare Holdings Ltd. v Mei (2014) 17 HKCFAR 466, recently analysed in this Journal) have, however, doubted the fiduciary classification of the rule. This article defends the rule's fiduciary classification. After examining key facets of the rule, it demonstrates that, although flexible, the rule cannot be stretched to protect stakeholder interests independently of corporate benefit.

Corporate mobility in Europe continues to be on the rise, both creating space for regulatory arbitrage by companies and influencing legislative decisions in corporate law and related fields. This has triggered debates in European company law that centre on questions of harmonisation, cross-jurisdictional convergence and the superiority of certain regulatory approaches and legal families. This article uses a large cross-country sample of EU Member States to classify legal strategies in corporate governance and assess claims of convergence and the superiority of legal families. We analyse board structure, the most important duties of directors, namely the duties of care and loyalty, questions of enforcement, and the position of directors in the vicinity of insolvency, and develop a taxonomy of legal strategies across the Member States. We find that, in spite of differences in regulatory technique and legal tradition, the effect of the legal strategies employed by the Member States is often remarkably similar and legal systems exhibit interconnections in the form of mutual learning across borders. In addition, we show that, in contrast to claims by parts of the literature, judicial innovation is not restricted to particular legal families. We argue that all legal families are, in principle, well equipped to react to new developments and draw on general or unwritten principles of law to fill regulatory gaps. However, a precondition for the emergence of effective rules seems to be a sufficiently large body of case law and, accordingly, access to the courts and an efficiently functioning judicial system. Consequently, we submit that questions of enforcement are of greater importance than a particular legislative or regulatory style.

The enterprise group form presents special risks of mismanagement when entities in the group are in financial trouble. At the same time, pursuing a group interest might assist in resolving the financial difficulties. In any event, delineating rules for this situation is challenging, given the variety of group structures and the potential erosion of the benefit of limited liability when the regulation targets the whole group. The conflict is between ‘entity law’ (which addresses each group entity separately) and ‘enterprise principles’ (addressing the group as a whole). There is scope for crafting the ‘wrongful trading’ provision, now being adopted as an international standard, to accommodate the group scenario. In this context, enterprise principles should function only to help ascertain the commercial reality, rather than to override entity law.

This paper is concerned with the risks to creditors from strategic business decisions taken by directors. It seeks to explain both why the law should impose creditor-regarding duties when the shareholders no longer have any substantial equity in the company and why such duties should not be imposed when the shareholders still have a substantial economic interest in the company. It goes on to argue that duties on directors to put the company into a formal insolvency procedure once the company has reached a state of insolvency do not adequately meet the interventionist criterion. The incidence of such duties depends in part on whether a balance sheet or a cash flow test is used for insolvency, but in any event duties to open formal insolvency procedures are too rigid unless they operate only when all hope of rescue has disappeared. However, the paper also argues that the need to promote a ‘rescue culture’ for companies in financial distress may lead the legislature to limit the creditor-regarding duty arising before, but in the vicinity of, insolvency to cases of liquidation and not to extend it to companies being handled through procedures whose main aim is to save the company or (parts of) its business as a going concern.

The European Commission's May 2003 Action Plan ‘Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward’ includes a proposal for new legislation on wrongful trading with a view to strengthening the personal accountability of directors in the case of a company's failure. The proposal builds on expert opinions that the existing law on wrongful trading in Great Britain is better capable of activating an early managerial response to a financial crisis than the German Insolvenzverschleppungshaftung (liability for delaying insolvency). This article challenges the alleged superiority of wrongful trading over Insolvenzverschleppungshaftung. It provides a detailed analysis of the case law under section 214 of the British Insolvency Act, which does not support the fundamental assumption underpinning the European endeavour, namely, that wrongful trading routinely imposes duties on the directors ahead of the onset of insolvency. Furthermore, the protection afforded to creditors under British law is less extensive than under German law as regards the amount of compensation for the creditors and, correspondingly, the financial risk incurred by the directors. Finally, the article looks at the special treatment of new creditors (Neugläubiger) under German law, which has the advantage of giving creditors a strong incentive to pursue delinquent directors.

A recent case in the English High Court, Re Continental Assurance Company of London plc (Singer v. Beckett), constitutes the first judicial pronouncement on wrongful trading (s. 214 of the Insolvency Act) which concerns a major company. The case should render us cautious about the alleged superiority of wrongful trading over creditor protection regimes in other European jurisdictions, notably the German Insolvenzverschleppungshaftung, and the consequential idea of the European Commission to propose a new directive on wrongful trading.